The US central bank discusses a slowing economy, and makes it plain to speculators that they are on their own, that there will no imminent rescue, no bail out, perhaps even the end of the Bernanke Put.

Markets throw a two day, 5% hissy fit.

The question surrounding this whackage that traders should be asking themselves is simple: Is this the beginning of a deeper sell off, or is this the end of a correction that began in the spring and has taken US markets down nearly 20%?

The parallels between 2010 and 2011 are obvious: Coming off a big Fed-induced equity rally, the slowing economy begins to make investors wonder about an earnings peak and potential reversal. A market sell-off of almost 20% gets the Fed chairman’s attention.

In 2010, a Jackson Hole speech leads to a broad based liquidity program, aka QE2. Its rocket fuel, and gets blamed for the next leg up of the equity rally, the gold rally, food inflation, and even the Arab Spring.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

52 Responses to “The End of the Bernanke Put?”

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Hell no, it’s just too early. My guess is November, 2011. It’s far enough off for the markets to fall and hit a congestion level. I’m thinking S&P 900ish or lower. It’s far enough to the end of the year to accomplish window dressing and make Q4 look like an improvement. QE3, Nov 2011, $1T.

Also, Bernanke has built a career on money printing, trickle down economics, asset inflation, and wall street appeasement. He won’t declare his life’s work to be a wasted effort and a mistake by holding back on a big one. Japan has survived an explosion of money printing. So will the US.

Nope. We just left QE2 literally 2.5 months ago. With 3 dissents the economy needs to worsen before QE3. The language in the statement left more action on the table for the future. We’ll be QE3ing within 2 meetings.

The US central bank discusses a slowing economy, and makes it plain to speculators that they are on their own, that there will no imminent rescue, no bail out, perhaps even the end of the Bernanke Put.

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Way to be HONEST and speak in CLEAR LANGUAGE, Bernanke.

I think this a valid talking point -provided we agree that it existed. And the tone on floor today was on this pulse. My pedestrian comment wud be that you- as have most- substituted QE for LSAP. CB swap lines are a form of QE as they can create ex reserves. IF- and its iffy- the EU-ECB can create facilities of critical mass –then Fed’s balk on more LSAP but continued QE will look smart

dead Hobo say:”Also, Bernanke has built a career on money printing, trickle down economics, asset inflation, and wall street appeasement”

Uh, no. Ben built a career as an academic. Being the Fed Chair isn’t exactly a “stepping stone” position.

Let’s hope that the Fed Put is over since then end result seems to be holders of wealth not doing anything productive with it (“investing” in gold, is not a productive activity, it is a bubble inflating activity).

I’m not at all sure that the Bernanke put is dead … OK, it is and it isn’t.

When the banksters squeal loud enough, and the politicians cry enough, there will be a QE3 — so it’s not dead. However, QE3 will have no impact whatsoever, most likely we will see a repeat of yesterday’s post-FOMC behavior upon its announcement. So it is dead.

We live in a quantum reality. Call it Schroedinger’s QE.

What WILL change things? Nothing that the government/Fed are willing to do.

Start by fixing what is broken — restore the regulatory constraints (Glass-Steagall, limits on bank leverage, eradicate the Commodity Futures Lunacy Act of 2000, HEAVILY regulate credit default swaps (or better yet, ban their use by banks or any publicly-traded company, utilize the antitrust laws to break up TBTF companies), wipe out the insolvent companies and allow capitalism to work again. Jail the most visible perps, making a statement to the rest.

Then we can move on to getting corporate money out of politics, establish term limits for Congress, and passing legislation that makes violation of campaign promises a breach of contract that is actionable by the voters — either by recall, no-confidence votes, or some mechanism.

We do need to downsize government, but not the rank and file so much as the bloated administrative and legislative branches. And a limit on Supreme Court terms would be nice as well — something long enough to fulfill the spirit of the current “elected for life” nonsense, but not so long that the increased life spans of people today (as compared to that in the 1700s) leaves us with 9 grumpy old senile fools on the bench for decades. A dozen years at least for their terms, but two dozen is way too much.

And then we need some ethics in our laws regulating business conduct. No more “anything goes”. For public corporations, we need laws that constrain what executives and board members can be paid, and especially limiting the cash payments to them. Some kind of formula relating the average non-management wage, the after-tax profits of the firm, and the medium-term performance of the firm, cranking out a range of values that executives can be compensated within. And when I say “average non-management wage”, I am referring to ALL the employees of the company, including those in China and other parts of the world. No more cutting wages for the average employee to bump profits so that the CEO can make his/her bonus. When employees take a cut in pay in order to make the company more competitive, I expect management to lead the way.

Don’t like those rules? Then take the company private. But if you’re gonna sell stock to the public, be prepared to play by rules.

Yeah, I know, we’re never gonna see ANY of those ideas put into practice. But that’s what it would take to make the system work again.

I think the selling is coming from the realization that congress will destroy liquidity regardless of what the FED does. It looks like austerity trumps FED:

Republican Defections Defeat Bill With Disaster Relief Aid

Sept. 21 (Bloomberg) — The U.S. House defeated a spending bill that included $3.65 billion in aid to victims of recent natural disasters and would keep the government operating past this month, delivering a setback to Republican leaders.

Republicans objecting to the measure’s overall cost joined Democrats opposed to a spending cut aimed at shrinking the price tag to derail the measure, 230-195. Opposing the legislation were 48 Republicans and 182 Democrats; backing it were 189 Republicans and six Democrats.

I must say, I am impressed by the decline/rout following the Fed statement yesterday, and today’s rather muted (non-existent) follow-through. My guess is that some “artificial” mechanism is providing a veneer of fake prices, and that if any significant volume emerges, it would vanish in a digital heartbeat.

Wile E. Coyote is doing a splendid job of not looking down, as he walks across the air between the cliffs.

The Ben Put has continued the Financialization of commodities which has retarded growth except for international money flows and traders. The continuing run up of oil and just about anything that has a futures market has finally shown a spot light on central bank policies that benefits the few and penalizes main street. The decision to buy MBS paper is a clear sign that another major leg down in housing is upon us with the combination of super low interest rates and FHA low down payment loans meant to spike up comps hoping to extract a few extra dollars for the MBS investors. The Ben Put continues to believe that financialization of a market in this case American housing is justified as another wave of foreclosed property will be hitting next Spring and Summer.

The larger question is, does it matter, at this point? We’re damned if we do, and damned if we don’t (answer this question: what’s in it for you, personally, either way?). It’s fraud, either way, because the entire monetary system is based on it.

Why is an overhaul out of the question, as it is truly the only way we can balance things? Austerity can only work if it is proportional to what we call “wealth.” Otherwise, society will fracture society (anyone who doubts this has never actually seen how the other half lives). Trust me on this: You don’t want to see what will happen if the middle class disappears. OTOH, Monetary stimulus only leads to perpetuation of the imbalances.

You cannot see the big picture if you don’t do so from outside the framework of fraud.

end of the put?
for the US not with a bang but with a whimper–and fiscal is whats left
-QE effects get exhausted

but the biggest prob is europe-the “solution” will come from there
with us finance half broke and europe finance 3/4 broke
as bankers know –halfway down after you fall off cliff
is not the best time for reform
pull the bailout ripcord the 100% no questions ask no haircuts bailout
–mainly in europe where europe banks are insolvent w/o major new bailout where nobody had deep pockets ready yet
so i trade this like the other big buyside vultures and bill gross
lighten way up and wait for the panicked euro bailout
only be short if you know they do nothing for 3 days
i am only hurting small as big gasoline short covers most little BS longs i got
where i even sell my treasures.

The end game is near in Europe. The contagion leap-frogged Spain and went straight to Italy. And the bank runs have clearly begun.

And China didn’t quite manage to ramp up its internal demand in time to make up for the crash in European and US demand. And now their own central government is admitting that the local governments are not following the “command” of the central bank. They’ve gone rogue with their own lending to keep local demand pumped. That can’t end well.

And the Fed, the Treasury, and the US congress can’t do squat about those problems.

Oh, the carnage of it all. People’s 401K “retirement” plans taking a good beating/thrashing/pummeling/shellacking. I wonder who has the cash to buy the Dow when it stops dropping. Oh, yeah — the top 1%.

It is time for the government to get their house in order. No more gimmicks. Let the markets work it out. We must totally rethink government and taxes. How much leverage is there in the bond market? Will this lead to a crisis?

As just about everyone knows, Bernanke’s primary field of academic interest was the cause of the Great Depression, his conscious or unconscious raison d’é-tat being the prevention of another depression. He imagines quantitative easing to be one of his most effective tools, and he will continue to use it until they pry it from his cold dead hands.

The result will be the same pattern we’ve had for the last eleven years. Lots of cyclical Sturm und Drang in stocks, but no sustainable gains in the foreseeable future.

I don´t believe bernanke will leave his Wall Street friends drying up in the sun. there´s no political support for more subsidies at this point. if no subsidies, the s&p gets killed… and everybody has a price. once it gets to the 900 level, people will look at the subsidies differently.
it´s unfortunate but democracies never take painful choices unless they have no other choice. Argentina didn´t have a choice back in 2001, it was very painful, but short. the US, as Japan at the time, has its own currency and money can always be a temporary cure, so it still has a choice and it will have a choice for many years (just look at 10-year yields!). and that´s why the bernanke put is still alive, just dormant for a few months.

I’m not talking about the small number of people who actually pay attention, and who have manages to preserve capital, or even withstand today’s shitbomb. I’m talking about simple working class people — the trusting hoi polloi, debt slaves.

The 800 lb gorilla (or two 500 lb if you like) in the room is (or are) a dysfunctional congress headed towards another budget battle and possible government shut down and a world economy that is contracting.

Couple tepid monetary response with austere or downright insane fiscal policy in an environment of global contraction and you’ve got a macroeconomic witches brew for sure.

The Bernanke Put was all that was left of Paulson’s bazooka…turned out that currency swaps are now being kited since the digits were invented in the first place. The next “Q” will be a “U” as in “U”se it or Lose it. Money printed with an expiration date, or a GM _USA product.

it occurs to me
that geithner–rather than just jawboning europe
has also granted big currency swap related funding to the big euro banks
while there was some bs about this driven by $ funding needs
i think these more like huge general liquididty support like discount windowing
so now he has leverage- do it my way euro bailout for euro banks
or no more swaps?

Unemployment will certainly get back to 10% as the “wealth-effect ” losses trigger more belt -tightening , and our misguided policies make things more and more dire
Expect the DJIA to fall to 8000 as a symptom along with 10-year yields staying below 2% for months and months with the 2-10 curve below 175 …… after August alful foreclosure news , we can expect at leastanother 1,000,000 more foreclosures and 1,000,000+ more job losses

Of course its dead. Market has the benefit of seeing how QE2 turned out and the stock market has not held. Furthermore operation twist shows how the misguided the Fed is, over-leveraged consumers cannot refinance and take on more debt to spend. Until the Fed realizes this is a balance sheet problem on the part of banks and consumers we’ll just see more of the same failed policies.

“Senator Warner today announced that he has organized a bipartisan coalition representing more than one-third of the members of the U.S. Senate to encourage the members of the congressional “super committee” to seek the broadest possible bipartisan agreement to address the nation’s deficits and debt. This group of 38 Senators — 19 Republicans, 18 Democrats and one Independent — builds upon Sen. Warner’s yearlong efforts, along with Sen. Saxby Chambliss (R-GA), to craft a deficit and debt framework as the two co-founders of the Senate’s bipartisan “Gang of Six.””

There is always the possibility they are behind the curve. When they dropped 6% in 2008, they did not have to pony up a single dime to execute that. In normal circumstances, if funds are tight, they have to accomodate the market to keep the rate down, or withdrawal funds to push it back up, but in 2008, all they had to do was a press statement. If the treasury shortining their duration, which seems stupid as all hell, and the fed entering the market is the solution, go figure. Maybe rates are low for a reason. If you want to buy a house and it costs 3% but the value is dropping, it’s easily a 5% loan with or without the fed. The real problem is that no one but insurance cos buy and hold for 30 years. If the 30 year goes from .5% to .25% that is a 100% gain in the same way as if the 8% goes to a 4%. That’s the game we’re playing, but it’s capital destructive because all existing capital gets undercut in the process. People made decisions under different circumstances and they are paying. Lowering rates does not help sunk costs one bit.

at this point concerns over so called “Central Bank puts” i think are little out there especially since it never existed in the first place. Now be a good Wall Street and keep depositing all your money with “those underpaid bureaucrats who really have no idea how important we are.”

Well said! Nice to see someone digging through the noise to the root cause. Here are a few points your list made me think about.

1) 20% minimum down payment for a house. They are not stocks to be traded; we were fools to let people speculate in property.

2) We killed our jobs engine by letting folks offshore and bank the profits. Let’s require companies that offshore to essentially make up the difference in wages as taxes and pay them to Uncle Sam. If they are going to put U.S. workers on the sidelines, they can at least be asked to pay for the unemployment checks. Our $650B goods trade deficit is 10-15 million jobs overseas that we need to get back here.

Our country has all the natural resources it needs, so eliminating this trade deficit and insulating ourselves from low-wage countries is a good start.

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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